The September Jobs Report: What the Experts Are Saying

The September jobs report was one of those perverse examples of "good news is bad news" as far as the market was concerned. 

Although payroll growth moderated somewhat, hiring was still more robust than the Federal Reserve would like. Furthermore, the unemployment rate fell to 3.5% – a 50-year low – from 3.7%, and average hourly earnings rose firmly.

You can dive into the details of the September non-farm payrolls report and its implications for monetary policy and asset prices elsewhere on Kiplinger. For now, let's just stipulate that the Labor Department did not tell equity investors what they wanted to hear.

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After all, market participants desperately want a less hawkish Fed. The fact that the economy went and created 263,000 new jobs last month means that the central bank's policy of aggressive interest-rate hikes remains the order of the day.

At least that's what the experts are saying. Below please find a selection of commentary (sometimes edited for brevity) from economists, market strategists, chief investment officers and other pros as they weigh in on the implications of the September jobs report.

• "Good news for the economy is bad news for markets, unfortunately. Today's unemployment number dropping to 3.5% would normally be celebrated – and it is good news for workers and demonstrates the strength of the job market – but in today's world, with a Federal Reserve laser focused on inflation, a stronger labor market is unlikely to lead to lower purchases and lower inflation. This should lead the Fed to continue raising rates into 2024 and not pausing by the end of this year, which was what many people were hoping for. Ultimately, the direction of the stock market is likely to be lower because either the economy and corporate profits are going to slow meaningfully or the Fed is going to have to raise rates even higher and keep them higher for longer, both of which should put pressure on corporate profits and stock multiples. Given the conditions that we are operating under, we believe it's prudent to begin preparing for a recession and the talk of a shallow recession that is now the narrative-du-jour, strikes us as eerily similar to the 'inflation is transitory' narrative of last year." – Chris Zaccarelli, chief investment officer at Independent Advisor Alliance
• "Nonfarm payrolls rose 263,000 in September, 8,000 above consensus but the smallest gain since April 2021. Payroll growth was supported by continued strength in healthcare and in leisure and hospitality, two industries for which job vacancy rates are particularly elevated. The household survey was somewhat softer, as household employment increased by 204,000, and although the unemployment rate declined to 3.5%, this partially reflected a decline in labor force participation. Average hourly earnings growth slowed to 5.0% year-on-year, in line with consensus. We continue to expect a 75 basis point [bp] hike in the Fed funds rate in November, a 50 bp hike in December, and a 25 bp hike in February." [A basis point equals 0.01%.] – Jan Hatzius, chief economist, Global Investment Research Division at Goldman Sachs

• "The decline in the unemployment rate will likely frustrate the Fed as tight labor markets could drive up wages. Average hourly earnings were up 5% from a year ago, growing at a slower pace than inflation and putting a dent in consumer purchasing power. September labor force participation rate was 62.3%, down slightly from last month and a percentage point below pre-COVID levels. Retail jobs fell in September for the first time since May and could indicate cooling demand for consumer goods. Individuals who were employed prior to the onset of the pandemic are still out of the labor force. As long as job gains are strong, the markets should expect aggressive rate hikes by the Federal Reserve. We will likely see another 0.75% increase to the Fed funds rate in November." – Jeffrey Roach, chief economist at LPL Financial
• "Job gains were largest in some of the hardest-hit pandemic sectors, such as leisure and hospitality and healthcare. The unemployment rate returned to a 50-year low of 3.5% through a combination of solid job growth and a roughly flat labor force. Wage growth moderated slightly but remains well above rates that are consistent with the Fed's 2% inflation target. Taken together, today's employment report suggests the labor market remained exceptionally tight headed into the final quarter of 2022. There are signs in the data that labor supply and demand are directionally moving toward balance, but the gradual improvement should not be mistaken for a completed journey. We continue to look for the FOMC to hike its policy rate by 75 bps at its November meeting." – Sarah House, senior economist at Wells Fargo Securities

• "The September jobs report is good for economic activity but not good for the Fed's intentions of cooling the U.S. economy in order to cool down inflation. The U.S. labor market continues to defy those who argue that the U.S. economy is in recession. While today's jobs report was good for the economy and for all of those that got a job, this is not what the Federal Reserve (Fed) wants to see. The decline in the unemployment rate back to 3.5%, an almost 50-year low, will keep pressure on wages and salaries and threatens to keep inflation higher for longer. Markets are probably not going to react positively to this jobs report because the strength of the U.S. economy will probably push the Fed to hike interest rates faster and higher while staying there for longer." – Eugenio Alemán, chief economist at Raymond James 
• "Today's employment data did little to change the narrative for a Fed committee that has been intensely focused on bringing down inflation. The robustness of the post-pandemic labor market conditions continues to be a problem for the Fed as the current policy measures put in place have yet to bring a meaningful slowdown to the economy. With payrolls still coming in well above 200,000 per month, wage gains still elevated, the Fed will have to remain aggressive in the near term and another 75 basis point hike in November appears to be in the cards. Overall, timing the Fed's pivot away from an aggressive policy stance is proving to be difficult and the current conditions in the labor market are certainly not helping the situation." – Charlie Ripley, senior investment strategist at Allianz Investment Management

• "We have a Fed focused solely on lagging or contemporaneous indicators and likely only paying attention to the headline, the jobless rate and the participation rate — and little else. And as the central bank continues to reset the policy rate higher, bonds, stocks and commodities will likely remain vulnerable to ongoing downward price pressure. Rest assured, the first asset class that will come out of the morass will be Treasuries, but since the Fed has most market participants convinced that headlines matter more than details, the bull-steepener we expect to see will have to wait a bit longer." – David Rosenberg, founder and president of Rosenberg Research 
• "It is encouraging to see another strong jobs report in September despite current recession concerns and rampant market volatility. However, we will continue to pay particular attention to unemployment, which we expect to remain below the natural rate of 4.5% this year. It's becoming more and more evident the labor market is playing a critical role in today's inflation battle. If unemployment remains low, employers will increase wages to attract talent, creating more disposable income. Increased purchasing power will then lead to increased demand for goods and services, spiking prices and potentially causing the Fed to raise rates even more." – Steve Rick, chief economist at CUNA Mutual Group

• "The September jobs report reinforced the fact that the labor market remains tight and will keep the Fed on course for continuing to aggressively tighten monetary policy. There continues to be a labor supply problem, with the participation rate moving the wrong direction and dragging the unemployment rate lower for the wrong reasons. We are going to remain in the environment where good news for the economy is bad news for markets. The one silver lining from the report is on the wage front. Average hourly earnings continued to moderate month over month, which may help future inflation readings, but does nothing for the market today." – Cliff Hodge, chief investment officer at Cornerstone Wealth
• "The economy added 263,000 jobs in September, the lowest level of job creation in 2022, yet still in line with estimates. Along with the Jolts jobs openings and ADP numbers from earlier in the week, today's release is affirmation that the job market has slowed a bit as of late. Despite the slowdown, wage growth remains at 5%, which signals a green light to the Fed that pricing pressures persist in the labor market. Bond investors took note, with the 1-year Treasury bill moving higher by 28 basis points following the release. Volatility is going to persist in equity and fixed income markets until there's a clear indication that inflation is under control. Until then, price fluctuation will be the norm and investors should look to strategies that can take advantage of periods of volatility." – Peter Essele, head of portfolio management at Commonwealth Financial Network

• "The market's immediate reaction to the payroll report, which was modestly lower than consensus estimates, suggests that the Fed will have to continue its aggressive campaign to tamp down inflation. Moreover, while hourly wages remain elevated, they came in just below consensus, again suggesting that the Fed's aggressive campaign to break the wage/price spiral is beginning – even at the margin – to take effect. Today's report, coupled with the recent job opening report indicating that job openings are beginning to weaken, underscore that the Fed's tightening campaign, as painful as it is, is beginning to slow down activity. Still, the market's initial negative reaction underscores that inflationary pressures are not decreasing fast enough for the market to be convinced that the Fed is closer to the end of its tightening cycle." – Quincy Krosby, chief global strategist at LPL Financial
• "Job growth will need to downshift much faster in the months ahead, and the jobless rate will need to show some tendency to rise toward the 4.4% rate the FOMC anticipates for late next year, before the Fed backs down on its aggressive tightening campaign. When new Fed Governor Cook says that inflation pressures have been 'stubbornly persistent,'  she has the labor market squarely in mind, and today's report will do nothing to ease her, or other policymakers', concerns about the inflation outlook." – Sal Guatieri, senior economist at BMO Capital Markets

• "Worries are firing in from all fronts following the latest robust snapshot on the U.S. labor market. Investors are simultaneously fretting that the fall in the pace of hirings indicates a slowing economy, but also that the better-than-expected data shows that the jobs market hasn't slowed enough to stop the Fed from hiking rates aggressively. Caution appears to be rising a little among employers but it's clear a fight for talent is still on, with many companies hesitant about reducing headcount as a precaution even as customers start reining in spending and worries rise about the outlook ahead. We're in a topsy-turvy world where signs of a resilient economy are taken as bad news by the market, such is the sensitivity surrounding the expected moves by central bankers right now. Although annual wage growth has slowed, warmth is still radiating in the economy so the Federal Reserve is still expected to put its foot on the gas of rate rises, in its attempt to bring inflation down to its target, with another 0.75% hike expected." – Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown
• "Clearly the labor market remains robust along with sustained stress on the Fed to stay hawkish. While job growth may finally be cooling off a bit from earlier this year, it remains strong amid rate hike pressure, especially considering the unemployment rate dropped. The market’s negative reaction may be a sign that investors are processing the likelihood that there will be no change in the Fed’s aggressive playbook in the near term. Keep in mind the next Fed decision isn’t until early November so much more data will need to be digested, not the least of which is next week’s inflation gauge." – Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office